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The Phantom Profits of the Opera: Nonprofit Ownership in the Arts as a Make-Buy Decision

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  • Kuan, Jennifer

Abstract

This article applies contract-theory to explain why nonprofits exist and how they compete for profits. Existing theories about nonprofits either assume that nonprofit organizations engage in "unprofitable" businesses and therefore rely on philanthropy and altruism, or that nonprofits can overcome severe informational asymmetries that for-profits cannot. Instead, I argue that nonprofits arise when consumers integrate into production; consumers, supported by institutions, organize to produce a nonrival good for their own consumption, and in so doing are able to achieve first-best. This modeling approach, developed in the context of classical performing arts, may have application in other industries in which nonprofits compete, such as health care, research and development (R&D), and education. Copyright 2001 by Oxford University Press.

Suggested Citation

  • Kuan, Jennifer, 2001. "The Phantom Profits of the Opera: Nonprofit Ownership in the Arts as a Make-Buy Decision," Journal of Law, Economics, and Organization, Oxford University Press, vol. 17(2), pages 507-520, October.
  • Handle: RePEc:oup:jleorg:v:17:y:2001:i:2:p:507-20
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    Cited by:

    1. repec:oup:jcomle:v:7:y:2011:i:1:p:69-92. is not listed on IDEAS
    2. Patrick HERBST & Jens PRUFER, 2016. "Firms, Nonprofits, And Cooperatives: A Theory Of Organizational Choice," Annals of Public and Cooperative Economics, Wiley Blackwell, vol. 87(3), pages 315-343, December.
    3. Jens Prüfer, 2011. "Competition And Mergers Among Nonprofits," Journal of Competition Law and Economics, Oxford University Press, vol. 7(1), pages 69-92.
    4. repec:pri:cpanda:wp30-dimaggio is not listed on IDEAS

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